About half of the 8 million approved for a mortgage over the last five years would have been rejected under the new rules proposed by the Financial Services Authority (FSA). Another interesting piece of data published by the Council of Mortgage Lenders (CML) is that 3.8 million of those 4 million remain viable, with only 200,000 having defaulted.
The research is being published at a pivotal time, when concern keeps mounting about the state of the housing market. Many economists believe there is a great chance of a double dip or even, a so called, fresh collapse of the volatile sector.
Michael Coogan, director general of the CML, commented on the impact the new rules will have on the housing market, saying: “It is not possible to quantify the precise effect on future business but it does suggest the impact is likely to be higher than the regulator has yet acknowledged.”
He expanded his thoughts about mortgages approved between 2005 and 2009, saying: “More borrowers would be protected from possible arrears and the risk of possession, but a substantially higher number of mortgages taken out between the second quarter of 2005 and the first quarter of 2009, which have shown no signs of payment difficulty, would not have been granted if the FSA’s affordability approach had been in place.”
The premises behind the new FSA rules are simple and appropriate. They include a period of the lenders putting the borrowers through far more detailed affordability tests before appraising loans. A client’s income and monthly expenditures would be considered, and each application will be evaluated as if it were a repayment mortgage.
Also included in the new approval process are assessments to see if a borrower can repay a loan over 25 years, and the ability to weather spikes in interest rates.
The main fear of the new proposals for industry experts is that it will eliminate many first time home buyers from successfully completing the process.
The FSA insists the new measures are an effort to maintain responsible lending practices between borrowers and lenders.